NEW YORK, Aug 20 (Reuters) - Dealmaking activity in the

oil and gas industry increased 57% last year as energy companies

boosted development spending, driven by higher cash flows from

profits in prior years, according to a report released on

Tuesday.

Top energy companies spent $49.2 billion on mergers and

acquisitions in 2023, up from $31.4 billion in 2022, according

to a report from Ernst & Young. The increase was mainly driven

by mega deals among integrated oil and gas companies.

M&A activity is expected to continue this year and into

2025, driven by more mega deals, EY said.

Money spent on tapping oil and gas also increased last year,

with exploration and development expenditures growing 28% to

$93.1 billion.

The jump in spending on dealmaking and expanding reserves

marks a shift in strategy following a years-long focus on

shareholder returns over growth, which many firms had employed

in a bid to lure back investors who had fled the sector.

Last year, oil and gas companies halved spending on

dividends and share repurchases payments to $28.9 billion from a

record $57.7 billion in 2022.

The sector-wide consolidation spurred M&A activity, boosting

companies' overall expenditures to $142.3 billion, 36% higher

than in 2022.

"We started to see in 2023 a focus to consolidate the

positions that operators had," Bruce On, a partner at EY's

strategy and energy transactions group, said in an interview,

noting a shift in strategy to invest in core operations.

Companies flush with cash were focused on driving efficiency

through scale and leveraging existing operations, he said.

Their profits fell 55% in 2023 to $83.9 billion, primarily

due to lower West Texas Intermediate (WTI) crude oil spot

prices, the report said.

Chevron ( CVX ) was the top buyer of properties in 2023 with

total property acquisition costs of $10.6 billion, largely due

to its $6.3 billion deal to buy Denver-based oil exploration and

production company PDC Energy, the report said.

Exxon Mobil ( XOM ) completed the $60 billion acquisition of

Pioneer Natural Resources in May this year. In October, Chevron ( CVX )

announced an agreement to buy oil producer Hess for $53

billion. The deal, however, is delayed until at least mid-2025

due to a legal dispute.

(Reporting by Nicole Jao; Editing by Muralikumar Anantharaman)